Must-Read: Nicolas Colin: Doom, or Europe’s Polanyi Moment?

Must-Read: I’ll take “Doom for $2000”, Nicolas…

If free trade, the industrial research lab, the gold standard, and high finance to lobby for peace and channel money to régimes that played by the rules of the game were the key stabilizing institutions of Gold Standardism, and if labor unions, Keynesian demand management, social insurance, and high-throughput oligopolistic assembly-line manufacturing were the key stabilizing institutions of Fordism, what are the next key stabilizing institutions? There is no guarantee that there will be any. There was, after all, a 33-year gap between the breakdown of Gold Standardism in 1913 and the first clear signs of the successful construction of Fordism in 1946. If we see 2000 as the last gasp of successful Fordism… we may have a long slog. For who in 1913 would have predicted the future and bet that labor unions, Keynesian demand management, social insurance, and high-throughput oligopolistic assembly-line manufacturing were the key institutions to be building?

Nicolas Colin: Doom, or Europe’s Polanyi Moment?:

The Great Transformation… is really about the social and economic institutions that are necessary to support the market system and to make economic development more sustainable and inclusive…

The ‘Great Transformation’ in and of itself is the painful process a society must go through to imagine and set up these indispensable institutions—a process that includes softer ways, like elections and collective bargaining, but also more destructive paths, like fascism and war. What Polanyi describes in his book is in fact the long economic transition between two very different worlds. One is the 19th century gold standard economy, whose prosperity culminated in the US during the Gilded Age. The other is the 20th century Fordist economy that only found its balance—and entered its Golden Age—after most developed countries had imagined and implemented the proper social and economic institutions in the wake of World War II—that is, after Polanyi finished writing his book….

We are currently going through another ‘Great Transformation’, this time from the Fordist economy to the digital economy…. New risks are emerging. Innovative firms are more prone to failure, imposing unprecedented economic insecurity on their employees. Work itself is undergoing radical change through what many deem “platform capitalism”….

As written in 2011 by John B. Judis,
The recession [triggered by the 2008 financial crisis] does not merely resemble the Great Depression; it is, to a real extent, a recurrence of it. It has the same unique causes and the same initial trajectory. Both downturns were triggered by a financial crisis coming on top of, and then deepening, a slowdown in industrial production and employment that had begun earlier and that was caused in part by rapid technological innovation. The 1920s saw the spread of electrification in industry; the 1990s saw the triumph of computerization in manufacturing and services. The recessions in 1926 and 2001 were both followed by “jobless recoveries”….

Yet another sign of a Polanyi moment is the dispute around what would be the best remedy to the multi-dimensional crisis we are currently going through. Like what happened in the 1930s between the elite who advocated restoring laissez-faire and the labor movement, we are currently seeing two movements at odds with each other. On one side are those who would like to restore the old Fordist economic order… fiscal austerity… regressive corporatism…. On the other side are those who reckon that we are undergoing another ‘Great Transformation’. For them, it’s high time we begin to tackle many difficult institutional challenges so as to support the growth of the digital economy instead of fighting it…. Finally… many institutions that were critical in balancing the Fordist economy and making it more sustainable and inclusive are unraveling at an accelerated pace….

Imagining and imposing new institutions for the digital age is incredibly hard. As for what led to setting up the institutions of the Fordist Golden Age (what we call in France the “Trente Glorieuses”, from 1945 to 1975), most developed countries had to go through total destruction before they could rebuild new institutions to be more in line with the new techno-economic paradigm…. The outcome was by no means guaranteed. The United States proved to be the only country with the leadership and the political system that could help it overcome the crisis without enduring its own destruction… a formidable leader, Franklin D. Roosevelt, surrounded by advisors of superior intellectual stature and gifted with extraordinary strategic and tactical aptitudes. Less known is the fact that the transformative effort of the New Deal also enjoyed the support of corporations that found an interest in supporting FDR’s agenda…. As written in 1984 by Thomas Ferguson and Joel Rogers in their landmark book Right Turn:

A new power bloc of capital-intensive industries, investment banks, and internationally oriented commercial banks constituted the basis of the New Deal’s great and virtually unique achievement—its ability to accommodate millions of mobilized workers amidst world depression. Because they were capital-intensive, firms in the bloc were less threatened by labor turbulence and organization. They could thus “afford” a coalition with labor, at a time when the costs of that coalition were, at least by American standards, high. Because most large capital-intensive firms were world, as well as U.S., pace-setters, they stood to gain from global free trade. They therefore allied themselves with leading institutional financiers, whose own minuscule work force presented few sources of tension, and who had supported a more broadly internationalist foreign policy and lower tariffs since the end of World War I. Together, members of this bloc provided the needed support for the two broad policy commitments—liberalism at home, internationalism abroad—centrally identified with the New Deal….

The solution won’t come from the government alone. Clearly it rests on the government, not the tech companies, to create the social and economic institutions that can align the various interests in an economy where both production and consumption are going through radical change. But we all understand how hard it is to exert the radical imagination necessary to devise what those new institutions should be. By way of expediency, many elected officials prefer to reason within the framework inherited from the Fordist economy. Instead of doing their homework and discovering new categories, they choose the easy path of trying to fit new business models into existing categories. Alas it doesn’t work…

August 21, 2016


Brad DeLong
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